As recently as 1990, Pepsi had a proprietary contract with the Indian government, which allowed it to be a cola provider in India without competition from Coca-Cola. Since then a paradigm shift has occurred in the Indian government's policies, with domestic protectionism being replaced by global market competition. The proprietary contract with Pepsi was relinquished and Coca-Cola was allowed to market its product in India.
Pepsi's experience in other parts of the world parallels its Indian experience. It was accustomed to enjoying a monopolistic position in Eastern Europe and Latin America as well. Now, Coca-Cola is selling its product in these areas and giving Pepsi a run for its money. These global developments necessitated Pepsi's rethinking its strategic orientation.
The rethinking in practice proved to be very expensive. The strategy developed was to capture a larger share of the global market through an international expansion programme. In 1994, Pepsi launched a major offensive in Brazil with a plan to sell more than 250 million cases a year. In 1996, the company was nearly disgraced in Brazil, when its bottling company faced insolvency. Meanwhile Pepsi's Venezuelan experience was also painful, with its bottling company defecting to Coca-Cola around the same time. In Mexico as well around this time, the company's main bottler was sustaining heavy operating losses. And in Eastern Europe, it was unable to make much headway because during the Communist era, it had enjoyed the patronage of Communist leaders . In the post-Communist era, it had to find its way in foreign cultures entirely on its own. The same was the case in Latin America. As the region started moving towards market competition, Pepsi lost its competitive advantage, and had to find its way almost like a new entrant.
Industry analysts have been highly critical of the strategy Pepsi devised and operationalized at this time. Its focus was on achieving a boost in sales in the short run, instead of emphasizing a build-up of brand loyalty. Its strategy was characterized by an 'all or nothing' or 'go for broke' approach. It also employed marketing tactics which may have served it well in the United States, but which were out of synchrony with cultures of other countries .
Between 1990 and 1995, Pepsi managed to double its international sales. This however does not detract from the fact that its strategy was not the best it could have been. In Brazil during this time, it launched three glitzy marketing campaigns that it subsequently had to jettison. Its main problem was its inability to develop a network of bottling partners . The key to marketing success in a country like Brazil, or India, is not publicity through circus-style advertising gimmicks, but point of purchase appeal . And the latter requires mastery over a local distribution system.
Despite all this, Pepsi remains a major player on the global scene. Its product quality is unchallengeable and it employs talented personnel. However, industry analysts do believe that major problems exist in Pepsi's strategic positioning, and its configuration of various corporate plans. Underlying all this is a lack of honing of intercultural understanding.
O'Hara-Devereaux and Johansen (1994) recommend that global companies entering into intercultural strategic engagements be prepared to find 'third ways' of developing vision plans and strategies. This 'third way' emphasizes the creation of a space where all partners have equal importance and are prepared to devise new ways of working together. O'Hara-Devereaux and Johansen term this the 'collaborative space'. These researchers suggest the following pointers for the creation of a collaborative space:
The process of creating visions is as important as the vision itself. It enables managers to bond together, and to understand how the other thinks and functions.
The common strategy developed should be a living tool, capable of constant adaptation as new realities present themselves .
Top management should be actively involved with the strategizing process, and set the example in being committed to the creation of a collaborative space.
There should be some ground rules for the conducting of strategy meetings between the top management teams of all partners. The existence of some structure for the meetings enables people from all cultures to conduct themselves appropriately.
There should be database systems for storing information about strategy formulation and implementation that all partners can access with ease. Sharing of information is a key to making collaborative spaces viable . Putting all relevant information on the table allows players to accept or modify strategic plans in an open environment.
Alterman (2000) has recommended that the feelings of the people concerned be kept in mind when a decision is taken about the management practices to be used by a strategic collaboration straddling several cultures. A collaborative arrangement may find it has two billing systems, for instance. It then has to choose. This might result in employees from one culture having to use a system that was developed in another culture. They could take the position that 'our system is better than yours'. Or they could transcend such narrow perspectives.
Lerpold (2000) recommends the creation of a separate identity for the collaborative arrangement, even if the arrangement is a temporary one, to solve this problem. This offsets the complications that arise when several ethnic cultures and at least two corporate cultures are juxtaposed. Unfortunately, according to Lerpold, global corporations entering into collaborative arrangements tend to neglect the people aspect. Instead financial matters are meticulously examined and their implications anticipated. This was the case with the BP-Statoil strategic venture. The differences between ethnic and corporate cultures turned out to be greater than anticipated, but initially they were ignored.
BP is a British corporation, Statoil a Norwegian one. The British perceived the Norwegians as being passive; the Norwegians felt the British were aggressive . With the passage of time and the non-resolution of differences, it became necessary to engage in damage control efforts. These included team-building exercises and cultural sensitivity training. Simultaneously, an identity was established for the collaborative arrangement. As the identity took hold, differences started to become less significant. And managers reported that they felt the work was fulfilling and the intercultural factor was exciting and invigorating.